Tuesday, December 29, 2015

Oil States Struggle With Low Prices

As the price of crude falls for a second year, marking the steepest
decline since the recession, the impact is cascading through the
finances of states, cities and counties, in ways big and small. Once
flush when production boomed, some governments in major energy producing
regions are facing a new era of unwelcome austerity as wells are shut
-- along with the tax-revenue gushers they spouted.
Alaska, Louisiana and Oklahoma have seen tax collections diminished
by the rout, which has put pressure on credit ratings and led investors
to demand higher yields on some securities. In Texas, the largest
producer, the state’s sales-tax revenue dropped 3 percent in November
from a year earlier as the energy industry exerted a drag on the
economy.
Further west, Colorado’s legislative forecasters on Dec. 21 estimated
that the state’s current year budget will have a shortfall of $208
million, in part because of the impact of lower commodity prices. In
North Dakota, tax collections have trailed forecasts by 9 percent so far for the 2015-2017 budget...
On Dec. 23, Moody’s Investors Service said Oklahoma may be downgraded
from Aa2, the third highest rank, because of the prospect for a
“prolonged, muted recovery in prices and production.” In February,
S&P and Moody’s cut their outlooks on Louisiana’s rating -- which is
now the third highest from both -- because of oil’s impact, which left
the state with a $487 million mid-year deficit. Alaska is at risk of
loosing its AAA rating from S&P, which cut its outlook on the state
in August after the government’s revenue was cut by more than half.
The
outlook has led investors to demand higher yields relative to other
debt. A 10-year Louisiana bond traded last month for a yield of 2.64
percent, or 0.56 percentage point over top-rated debt, more than triple
the gap when they were first sold a year ago. That difference on a
10-year Alaska bond has nearly doubled since August to 0.31 percentage
point.

These states have been getting a free ride for a hell of a long time. I'm not losing sleep over whether Alaska, Oklahoma or Louisiana might have to raise taxes or slash spending. I was tired of hearing about Texas and North Dakota anyway.